BALTIMORE (Stockpickr) -- U.S. markets bobbed and weaved yesterday, responding to a pile of catalysts -- from Janet Yellen to earnings season to a barrage of M&A activity -- that are keeping investors on their toes this summer.
But at the end of the day, the S&P 500 ended things 0.42% higher, coming within 3 measly points of all-time highs once again. Even though the big index is scraping up against the top of its long-term trading range, shares don't seem willing to back down. So even though "top-calling" is starting to run rampant again this summer, no one with skin in the game is taking gains.
And we're seeing that bullish stampede play out in the individual stocks this week. In a big way, we're seeing bullish technicals shaping up in more individual names in July than in quite some time.
That's why we're turning to the charts today, for a technical look at five big stocks to trade for gains.
If you're new to technical analysis, here's the executive summary.
Technicals are a study of the market itself. Since the market is ultimately the only mechanism that determines a stock's price, technical analysis is a valuable tool even in the roughest of trading conditions. Technical charts are used every day by proprietary trading floors, Wall Street's biggest financial firms, and individual investors to get an edge on the market. And research shows that skilled technical traders can bank gains as much as 90% of the time.
Every week, I take an in-depth look at big names that are telling important technical stories. Here's this week's look at five high-volume stocks to trade this week.
Up first is department store chain Macy's (M), a name that's more or less kept pace with the rest of the broad market in 2014. Even though this stock's performance hasn't been especially noteworthy, that's looking ready to change thanks to a bullish setup that started forming in shares this April. Here's how to trade it.
Macy's is currently forming an ascending triangle pattern, a bullish setup that's formed by horizontal resistance above shares (in this case at $60) and uptrending support to the downside. Basically, as Macy's bounces in between those two technically important price levels, it's getting squeezed closer to a breakout above that $60 price ceiling. When that happens, we've got a buy signal in M.
Macy's most recent swing low at $56 is an important price level to keep in mind after the breakout happens; once you're long, that support level is a logical place for a protective stop in this $20.6 billion stock. Remember, Macy's doesn't become a high-probability trade until shares are able to catch a bid above $60.
Grana y Montero
Sliding down the market-cap scale brings us to Peruvian engineering and construction firm Grana y Montero (GRAM), a name that's gotten hammered lower for most of 2014. Since the calendar flipped to January, shares of GRAM have fallen by more than 14%. But that could be about to change; shares of the $2.5 billion firm are starting to look "bottomy" here.
That's because Grana y Montero is forming a double bottom, a bullish reversal pattern that's formed by a pair of swing lows that bottom out at approximately the same price level. The buy signal comes on a push through the resistance level that separates those two lows. For GRAM, that breakout level to watch is $18.25. Shares are testing out a move through level today.
Momentum, measured by 14-day RSI, adds some bullish confidence to a breakout in GRAM. While this stock's momentum gauge had been dropping for most of the last year, the downtrend in RSI broke at the start of June, and it's been making higher lows from there. Since momentum is a leading indicator of price, that bodes well for traders who buy the $18.25 breakout in GRAM.
Diebold (DBD) is another breakout name to watch this week. After moving 15% higher this year, DBD is forming a cup and handle pattern, a classic bullish price setup that's formed by a cup-shaped rounding bottom in shares that's followed up by a short-duration channel down. The buy signal comes on a move through the pattern's price ceiling at $41.
Why all of that significance at $41? It all comes down to buyers and sellers. Price patterns are a good quick way to identify what's going on in the price action, but they're not the actual reason a stock is tradable. Instead, the "why" comes down to basic supply and demand for Diebold's stock.
The $41 resistance level is a price where there has been an excess of supply of shares; in other words, it's a spot where sellers have previously been more eager to step in and take gains than buyers have been to buy. That's what makes a breakout above $41 so significant -- the move means that buyers are finally strong enough to absorb all of the excess supply above that price level. When it happens, I'd recommend keeping a stop just below the 50-day moving average.
That level has been a good proxy for support in the last several sessions.
The good news is that you don't need to be an expert technical analyst to figure out what's going on in shares of big bank Wells Fargo (WFC). Instead, a quick look at the chart tells you just about everything you need to know: WFC is bouncing its way higher in a well-defined uptrending channel. That makes Wells a "buy the dips stock" this summer -- and right now, we're in the middle of a dip.
Wells Fargo's price channel has been intact since last October. Put simply, every correction down to trend line support has given buyers an optimal entry opportunity for buying shares, so, as WFC tests support for a fifth time over the course of its price channel, it makes sense to buy the next bounce higher.
For WFC, the side indicator to watch is relative strength, the lower subchart on the chart above. Wells' relative strength line has kept its uptrend intact as well, which means that this stock isn't just moving higher -- it's also outperforming the S&P 500 along the way. As long as relative strength keeps making higher lows, this stock should keep beating the rest of the market.
Up last is oil and gas supermajor Chevron (CVX), a name that's showing us a price channel nearly identical to the one in Wells Fargo. The big difference between the two charts is the fact that Chevron's uptrend hasn't been intact for nearly as long as the one in WFC. But that doesn't change how you trade it: Buy the dips.
More specifically, you don't just want to buy shares of Chevron when they get near support -- you want to buy the bounce off of trend line support. Actually waiting for a bounce is important for two key reasons: It's the spot where shares have the furthest to move up before they hit resistance, and it's the spot where the risk is the least (because shares have the least room to move lower before you know you're wrong). Remember, all trend lines do eventually break, but by actually waiting for the bounce to happen first, you're ensuring CVX can actually still catch a bid along that line before you put your money on shares.
The 50-day moving average has been a solid proxy for support since the middle of April, making it a perfect place to keep a stop below. After all, if the 50-day gets violated, then you don't want to own Chevron anymore.
To see this week's trades in action, check out the Must-See Charts portfolio on Stockpickr.
-- Written by Jonas Elmerraji in Baltimore.